Rishi Sunak has been urged to delay the impending red diesel ban in light of oil-price hikes, sparked by Russia’s invasion of Ukraine.
The Construction Plant-hire Association (CPA) wrote to the chancellor to warn that ending the right of building firms to use the rebated fuel next month would exacerbate supply chain problems in the sector.
Under the Finance Bill 2021, it will be illegal to put red diesel into the fuel tanks of vehicles and machinery used for construction purposes in the UK from 1 April. White diesel, which is subject to a higher tax rate, or an approved alternative fuel must be used instead.
But the CPA believes soaring fuel prices and global disruption mean that now is the wrong time for the change.
“When set against the continued uncertain economic recovery from the pandemic, and now the ongoing conflict within Ukraine, the removal of the rebate will further increase price pressures on our members at a time when they have limited scope to absorb costs,” wrote the association’s chief executive, Kevin Minton.
A survey by the Civil Engineering Contractors Association last year warned that the ban on red diesel, alongside other fuel tax changes, could cost small contractors up to £600,000 per year.
In the past two weeks, a number of analysts have said that Russia’s invasion of its neighbour could drive inflation in the cost of products used on UK construction sites. Small firms have warned that shortages and price hikes caused by the conflict could bring big projects to a standstill.
Reuters this week reported that oil prices had hit a 14-year high, as world leaders considered halting imports that benefitted Vladimir Putin’s regime.
The CPA urged Sunak to use his Spring Statement later this month to push back the ban on red diesel.
“With the ongoing uncertainty around oil prices, we would welcome a delay in the removal of the rebate until oil prices are more stable and companies are better able to deal with the impact of rising costs,” wrote Minton.
“We continue to see delays in supplies of materials and construction products. Adding to the cost of construction at this very moment in time will only make matters worse,” he added.
The association also urged Sunak to extend the so-called super-deduction that allows companies to claim tax relief when buying new plant and machinery. The CPA wants this to remain in place beyond its slated end date of March 2023 and for the exclusion of plant-hire companies to be lifted.
A Treasury spokesperson said red diesel accounted for nearly 14m tonnes of carbon dioxide emissions every year so it was “right” that the substance was “taxed more fairly” as the UK moved towards its goal of being net-zero by 2050.
They added: “To support firms transitioning away from red diesel, there is £40m of support available via our Red Diesel Replacement Competition.
“We’re backing the construction industry more broadly through tax incentives like the Annual Investment Allowance and the super-deduction, the biggest business tax cut in modern British history.”
Rishi Sunak will deliver his Spring Statement on 23 March.